Got Cash for that Sub-$100,000 Home? That’s Great, But …

avatarthumbnail.jpg“I’m kind of a big deal.”

– Ron Burgundy, Anchorman

This wondeful soliloquy enters my mind whenever I see an e-mail from a prospective buyer wishing to put an offer in on a sub-$100,000 home. “This will be a cash offer,” the e-mails say, with the expectation that cash moves you instantly into first class and/or the fast check-in line at The Mirage.

Except rarely are these buyers alone in their cash-flush state. In fact, cash is the norm in the sub-$100,000 portion of the Phoenix real estate market. So far this year, 10,410 single family detached homes listed at under $100,000 have sold in Maricopa County. According to the information entered by the listing agent (God help us all) 6,583 of these – a full 63.2 percent – have been sold in a cash transaction.

Drop that limbo bar to the $75,000 mark and 5,536 of the 7,147 closed sales – 77.5 percent of the sales – are cash deals. And the percentages continue to climb as prices fall and loans become impossible to find.

Why wouldn’t a bank accept your cash offer? There’s one obvious answer – you didn’t put enough cash in the wheelbarrow. The sub-$100k market is highly competitive and the successful buyers are the ones writing multiple offers to see what might stick.

There are rumblings from those looking in these price ranges that “those damn investors” are snapping everything up and running up prices like they did in 2005; what’s different this time around, of course, is some of these properties are at 1970s pricing. One client of mine who had been attempting a short sale was surprised to learn her home was worth about what she paid for it in the early 1970s.

Undervalued property? Absolutely. It can and is happening. At the same time, the investors are purchasing properties like this west Phoenix gem I wrote an offer for yesterday afternoon – no kitchen, no air conditioner (it has been on the roof, the previous owners apparently brought out a crane to remove it), no bathroom fixtures, even the fireplace has been removed.

What are you buying for $14,000, the cost of a smallish automobile? A shell of a home. Four walls, hopefully some wiring. The rest is up to the buyer to replace.

Which is why cash isn’t king. It’s a necessity. With the NBA Finals starting tonight this brings to mind the street basketball axiom “come strong or don’t come at all.” It’s great that you have cash. Really. But you’re far from the only one. So cash isn’t nearly enough to guarantee that first offer’s going to fly.

[tags]Phoenix real estate[/tags]

About Jonathan

Jonathan Dalton is a 30-plus-year resident of the Valley and has been helping folks buy and sell homes since 2004. He can be reached at 602-502-9693 or info at allphoenixrealestate.com.

  • Another great post Jon. My only wish I had thought to do it first at my blog!

    For most of my about 20 years in real estate, it’s amazed me when people think they’re “hot stuff” if paying all cash. The times that it didn’t amaze me was before I took the time to think it through.

    It is always “all cash” to the owner at the COE. To a home seller, it really doesn’t matter whose cash it was.

    Yes, it’s nice as a seller to not have to worry about a buyer’s financing contingency, but all you really do in many cases is replace it with other concerns, such as, “Do they truly have that Cash?” to “I hope it’s there when it’s time to close” to “I hope that buyer and all of that cash don’t walk”.

    Lastly, understanding that paying “all cash” from a purchaser’s point of view can have advantages (particularly looking at rates of returns, especially in light of putting that cash in other assets in today’s turbulent markets) and for those who crave the emotional contentment that can come from real estate owned free & clear, these “paying all cash is the way to go” folks either don’t understand leverage properly managed with real estate is one of its very best asset qualities & that “never part with more cash than you have to” are key concepts in action to be familiar with.
    Better to have your cash still available when you want it than having it tied up in real estate and perhaps needing to borrow against it or sell later, as many of these people end up doing…persons who often said “I don’t want to have to pay any interest to a lender”, end up doing so anyways on what was their own cash to begin with.

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